From the II Web Site (www.iionline.com)
Q4 earnings to fall short on one-time
margin problem; Buy (12/29)
It appears that Trimble is going to miss its
fourth-quarter (ending December 31)
estimate. Instead of our estimate of $0.27
per share, Trimble could post earnings as
low as $0.08 per share. There are a number of reasons for this sudden
earnings shortfall.
Trimble announced that it is shipping a significant portion of the $12 million
contract for Cargo Utility GPS Receivers (CUGR) to the Army, estimated
at around $7 to $8 million. After this announcement, we talked with Dennis
Ing, Trimble's CFO.
Mr. Ing tells us that in order to satisfy the Army, the company had to
prioritize the CUGR over other contracts, pushing some of them into early
1998. 1997 revenue from CUGR will not therefore be in addition to other
sales we had expected, but will instead substitute for them. Unfortunately
CUGR has much lower margins (in the low 40s) compared to Trimble's
commercial products (margins in the 50s). Thus the company's gross
margins for the quarter will be about 51%, versus our expected 53%.
Not only does Trimble have to temporarily push aside higher margin
commercial products; CUGR has incurred some higher research and
development costs than expected, so R&D expense will jump to close to
$11 million.
Trimble is shipping product of about $2.5 million per day and depending on
the product mix it ships in the last couple of days, earnings could be much
higher, though still not close to the $0.27 per share we were expecting. We
estimate that Trimble's range for earnings is now $0.08 to $0.16 per share.
Elsewhere, Trimble closed the books in the quarter on a number of lawsuits,
which it basically won. Unfortunately general and administrative costs rose
because of the increased lawyer costs.
Based on our conversation with Mr. Ing, we are comfortable that this is just
a one-quarter blip, not a long-term problem. So now the question is
whether you focus on the short-term pain or long term gain. Since the
long-term fundamentals are still intact and Mr. Ing was still comfortable with
our 1998 earnings forecast of $0.95 per share, we reiterate our Buy
recommendation, especially on any weakness in the stock that may result
from these newly-discovered fourth-quarter problems.
Looking forward, the first quarter could actually be very strong from an
earnings standpoint, if Trimble has to push out its higher margin products
from the fourth quarter.
(Posted on 12/29/97 with TRMB trading at $23.63) |
